We reveal how the 10 highest-yielding FTSE 100 shares fared in a year of recovery for dividend payments.
Once again, the results are in from our annual survey of the Dogs of the FTSE – the 10 highest-yielding companies in the FTSE 100 – and their performance against the wider blue-chip index.
And for the third year running, sadly, the pack has failed to deliver in terms of share price returns, managing a respectable but under-par 12.2% against the FTSE 100’s 16.5% over the year to 31 January 2022.
However, it’s closely in line with its peers in total return terms, with both groups chalking up almost 21% when dividend payouts are also taken into account.
That’s unsurprising, given that these mutts were selected exclusively on the basis of their high-yielding potential; indeed, this year provides a good example of the power of dividends to compensate for relatively underwhelming share price performance.
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So how does it work, and what’s been going on this year?
The Dogs investment strategy is a very simple one. Every year, you identify the 10 FTSE 100 companies with the highest yields (we use SharePad to do this), and split your investment equally between them all. At the end of the 12-month period, you repeat the process, re-allocating your cash among the current highest yielders.
The basis of the whole idea is that companies with high yields are in many cases irrationally unloved by the market, and therefore stand to reward investors well when they eventually return to favour; but in the meantime a meaty yield helps to ease the pain.
Interestingly, although the Dogs have not really shown their mettle in 2021 or 2020 and had an awful year relative to the wider index in 2019, they remain firmly ahead over the 21 years since we started this exercise in Money Observer magazine.
The average annual share price gain over that time has been 5.2% for the Dogs, compared with just 2.0% for the FTSE as a whole, and in total return terms they’ve done almost twice as well, notching up a solid 11.6% per year on average against the index’s 5.9%.
Looking at the 2021 line-up, there seem to be some macro influences at work. For instance, Brent crude oil price rises of more than 50% over 2021 meant that BP (LSE:BP.) was the canine champion of this year’s pack, with a 41% share price uplift. The dividend played a relatively small part in its steamy 47% total return.
Wider inflation also reared its head in a big way in late 2021, resulting in January’s rotation out of highly valued growth stocks and into more defensive sectors that will be less susceptible to looming interest rate rises, such as tobacco.
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Sure enough, both Imperial Brands (LSE:IMB) and British American Tobacco (LSE:BATS) have pulled off a FTSE-beating 19% share price rise. They’ve been further helped by significant growth in vaping and other non-tobacco products, and also no doubt by the re-opening of airport duty-free stores during the year in the wake of the pandemic.
Other high-performing Dogs reflect stock-specific recovery stories. Asset manager M&G (LSE:MNG) struggled following its demerger from Prudential in 2019, but appears to have made a strong recovery in 2021 with a 22.6% boost to its share price on top of a dividend payout of almost 10%.
Vodafone (LSE:VOD) has also had a terrible few years, but the signs are that a gradual recovery is under way. Recently released third-quarter results show performance in line with guidance and are hailed as “a solid quarter” by the telecoms giant. In the meantime, the dividend helps to compensate for sluggish movement in the share price.
Improvements in fortune are yet to materialise for some companies. Despite economic recovery and a global upturn in demand for steel, miner and longstanding Dog EVRAZ (LSE:EVR)’s desirable 17.6% total return was entirely attributable to its hefty dividend. Share price performance was held back by an export duty introduced by Russia in August, which impacted profit margins.
The two biggest disappointments are both financial services companies. Asset manager abrdn (LSE:ABDN) (formerly Standard Life Aberdeen) trails the pack badly with total losses, even including an attractive dividend, of 15% over the year, while insurance business Phoenix Group (LSE:PHNX) achieves uninspiring single-digit total returns.
How the 2021 Dogs fared
|Company||Price return over one-year period (%)*||Total return over one-year period (%) *|
|Imperial Brands (LSE:IMB)||19.1||28.6|
|British American Tobacco (LSE:BATS)||19||27.2|
|Standard Life Aberdeen (now called abrdn (LSE:ABDN))||-20.3||-15.4|
|Legal & General (LSE:LGEN)||17.8||25.1|
|Phoenix Group (LSE:PHNX)||-2.2||5|
|FTSE 100 Index||16.5||20.7|
|Dogs average return||12.19||20.62|
Source: SharePad. *31 January 2021 to 31 January 2022. Past performance is not a guide to future performance.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.